Slashdot Mirror
Mark Zuckerberg's Big Facebook Mistake
Hugh Pickens writes "Nathan Vardi writes in Forbes that in the last two months, Mark Zuckerberg has had a rude introduction to the capital markets. With Facebook's stock in free-fall, down more than 40% from its IPO price, Zuckerberg has a big problem. 'Zuckerberg did not want to deal with the pressures of being a public company. Like many entrepreneurs these days he viewed the capital markets with suspicion,' writes Vardi. 'So Zuckerberg made a fateful decision, he decided to keep Facebook a privately-held company for much longer than other success stories like Google or Amazon.' But waiting eight years to conduct an IPO has turned out to be an impossible problem to manage. The bankers at Morgan Stanley applied all the lessons of the last 15 years and priced the IPO at $38, which was very aggressive, in an attempt to avoid leaving any money on the table and the embarrassment that a huge IPO pop would represent. With such a big valuation at IPO time, Facebook had to show some results. But the numbers that Facebook announced in its first quarterly earnings report were underwhelming and the trading hordes drove Facebook's stock down by 15% in Friday morning trading. Now the early institutional investors are heading for the exits and it's hard to imagine morale at Facebook won't take a hit that correlates with the loss in value of the shares belonging to the employees. 'The lesson of the Facebook fiasco for Silicon Valley is clear. Start-up entrepreneurs cannot evade the discipline of the capital markets any more than can the prime ministers of Spain and Italy.'"
Couldn't have happened to a nicer guy.
So the problem is Zuckerberg's alone to bear? How about the responsibility of the Banks in price fixing the IPO? How about the attempted over inflation of the stock by those same banks on opening day? How about the SEC and their lack of (either ability or willingness) enforcing their own rules and regulations?
I'm not a fan of Facebook by any means. They have done numerous shitty things and continue to do shitty things. The Capitalist Economy has mechanisms for dealing with those practices. To blame the financial fiasco on one person is simply ludicrous!
-The wise argue that there are few absolutes, the fool argues that there are no probabilities.
The sad part is that Facebook IS capable of making money, just not gazillions of dollars worth. I've been wondering all along HOW Facebook was going to justify valuation. I guess we have the answer now -- it can't.
Proverbs 21:19
Lesson 2: Investors are so stupid they still believe banks after the toxic mortgages fiasco in which they were lied to morning and night.
Lesson 3: Investors are so stupid they believe a fashion business in a volatile industry is worth sackloads of money.
Lesson 4: Nobody ever missed a bonus through screwing investors.
Yup, looks like they applied all the lessons.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
How does the share price falling hurt Facebook? They sold the shaes at the IPO price so they already got the money. If they want more money in the future they issue more shares... Basically Facebook just got shitloads of money in exchange for a marginal loss of control. How are they losing out?
In Soviet Russia meme tires of you!
"....can't escape the discipline of the capital markets..."
Discipline.
That's a funny word to use with a market that:
- turns trades of tens of millions of shares in literally seconds
- acts like a flock of frightened sheep at the slightest whiff of trouble
- punishes companies who accept short-term sacrifices in favor of long-term growth/gains.
Our company "went public" and I am hard-pressed to understand who - other than the execs, who get fat options and big share-piles - benefits?
The company CERTAINLY doesn't.
Where previously you had a private firm whose only real measure was year-on-year viability as a company, now we have a giant firm whose sole strategic goal seems to be "hit the monthly numbers". Foolishness, chicanery, and outright lying seem to all be acceptable tactics, and the business now has a 30-day outlook, instead of the previous generation(s) of CEOs who looked at what it would take to develop markets and commercial potentials in decade-long or even (for a family company) generational-length timelines.
-Styopa
Why should the shareholders get any compensation?
I don't have any Facebook stock because I AM NOT AN IDIOT.
Anyone with a single brain cell, indeed even most amoebas stayed far away from the Facebook IPO.
The problem was in initial setup conditions and if you were too stupid to figure out the initial price was wrong beyond belief you deserve the loss and pain that resulted.
That is the stock market.
People on Slashdot talk a big game about how they believe in survival of the fittest and evolution but then don't seem to want the game to apply to them...
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Quite.
This is not Zuckerberg's fiasco. It's the underwritter's fiasco. Zuckerberg in fact made out like a bandit here.
A Pirate and a Puritan look the same on a balance sheet.
It was a failed IPO for speculators, it was an absolutely fantastic IPO for Facebook. The 2 parties are at odds with each other: the company that is having an IPO wants to sell it's share for a high price, to get as big of a cash infusion as possible, while the speculators want the IPO price to be as low as possible, so when there is a quick "pop" after the IPO, the speculators get rich quickly.
Mark Zuckerberg and Facebook got about as good of a deal as they could've ever dreamed of and with Mark still retaining control over 50% of the shares, he doesn't have to give a damn about the rest of the shareholders even if every single one of them bunched up together to make demands.
I disagree. The point of an IPO is to get money for the company doing the offering, not to make institutional investors rich. The stock was priced perfectly to extract the most money out of investors and give it to Facebook. Had they priced it at $25 and it had popped to $50, Facebook would have had less money at the end of the day.
Maxim: People cannot follow directions.
Increases in truth directly with the length of time spent explaining them
Look, I'm no true oldtimer, but *everyone* knows the term is "slashdotter".
Unless you're a Scandinavian daughter of the lead guitarist from Guns-N-Roses, in which case you're a Slashdottir, but that's kind of beside the point.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
The Forbes bankster types are just sore because they got played. Worse, they got played by a geek – someone they underestimated because he wasn't wearing a $5,000 business suit, but who proved by his handling of the IPO that he was smarter than all of them put together.
Zuckerberg already cashed out to the tune of a billion dollars. Why should he care that a bunch of arrogant bankers lost money on the stock? Not his problem. He still has a controlling interest in the company thanks to the Class B shares he retained, so the other shareholders can't even force him out.
Zuckerberg beat Wall Street at their own game, and they can't stand it.
If facebook.com were to vanish from the DNS tomorrow, my girlfriend would be mildly annoyed for about 10 minutes.
If google.com were to vanish tomorrow, it would be a national emergency second only to an accidental nuclear attack.
Google is a de facto public utility. Facebook is a toy.
Remind me - how it is that early investors are not shareholders?
Easy! There are 3 major groups of investors in the Facebook IPO fiasco.
1) the actual employee shareholders - those that have a day-to-day stake in seeing Facebook succeed
2) the gamblers / day traders who were betting on riding the initial pop of the Facebook IPO to a quick short-term turnaround profit (this group expanded quite a bit as a lot of casual investors got caught up in the hype)
3) long-term investors who saw this coming but are betting on a positive outlook on Facebook's long-term financial health
Five years from now, as long as Facebook doesn't tank or pull a Myspace, there will only be one group out of these three that will still be pissed off at the Facebook offering. Why are the #2 group (the early investors) not true shareholders? Because they're really nothing but speculating middlemen. They genuinely have no stake in how the company performs or any other metric for that matter, as long as the price per share on their holding goes up over the specified period of time that they want. "Facebook" just happens to be the name on the black box that they put up money for that they hoped would turn into a big payday.
Light a fire for a man and he'll be warm for a day. Light a man on fire and he'll be warm for the rest of his life.
"discipline of the capital markets.."
I drank what? -- Socrates